'Excellent' comp results

BOCA RATON, Fla.—U.S. workers compensation insurers posted "excellent" financial results for 2006, with all major measures improving significantly, according to an NCCI Holdings Inc. analysis released last week.

The insurers' 2006 calendar year combined ratio of 96.5% represents their best underwriting results in 30 years and a 6.5 percentage point improvement over 2005, according to the National Council on Compensation Insurance Inc.'s annual State of the Line report.

On an accident-year basis, the industry saw its fourth straight year of underwriting profits, with NCCI estimating insurers' combined ratio at about 87% for 2006.

Additionally, accident frequency continues to decline, the loss cost environment is generally stable, insurer reserves are the strongest in more than 20 years and the residual market continues to shrink.

Because of the positive results, "some parties" may feel it is time to address benefit levels, administrative rules and cost control measures, said the Boca Raton, Fla.-based organization that provides rating services for 30 states and compiles nationwide workers comp statistics.

In fact, NCCI so far this year has priced the potential impact of more than 150 bills and proposals introduced in several states vs. 130 for all of 2006.

While NCCI's short-term view of the workers comp line is optimistic, its long-term view is cautionary.

Medical costs continue to increase at or near double-digit rates, the Terrorism Risk Insurance Extension Act expires at the end of this year and it remains to be seen whether a permanent solution will emerge, while investment gains are down dramatically compared to the large returns of the late 1990s.

The record low interest rates of recent years, along with a need for the industry to strengthen its reserve position means the excellent underwriting results of 2006 are a necessity, NCCI Chief Actuary Dennis Mealy said in a statement.

The results are skewed by the experience of California, where reforms have substantially reduced costs and pricing, the NCCI noted. Excluding California, results would have raised the nationwide calendar year combined ratio about 10 percentage points to more than 105%.

The accident year combined ratio would have increased from 87% to 95% if California results were excluded.